Debt crisis: Deal sought to head off stock plunge

President Barack Obama sits next to House Speaker John Boehner of Ohio, left, in the Cabinet Room of the White House, Saturday, July 23, 2011, in Washington, as they meet to discuss the debt. (AP Photo/Carolyn Kaster)

/ AP

President Barack Obama sits next to House Speaker John Boehner of Ohio, left, in the Cabinet Room of the White House, Saturday, July 23, 2011, in Washington, as they meet to discuss the debt. (AP Photo/Carolyn Kaster)

President Barack Obama sits next to House Speaker John Boehner of Ohio, left, in the Cabinet Room of the White House, Saturday, July 23, 2011, in Washington, as they meet to discuss the debt. (AP Photo/Carolyn Kaster) (/ AP)

DAVID ESPO, AP Special Correspondent

Precariously short of time, congressional leaders struggled in urgent, weekend-long talks to avert an unprecedented government default, desperate to show enough progress to head off a plunge in stock prices when Asian markets open ahead of the U.S. workweek.

With the White House consigned to the periphery of negotiations, Republicans sought as much as $4 trillion in deficit cuts over a decade as a condition for raising the nation's debt limit.

But after hours of staff negotiations followed by a meeting of Congress' top four leaders, Senate Majority Leader Harry Reid accused GOP leaders of intransigence, adding he would not accept anything less than a deal that raised the debt limit through 2012.

"Their unwillingness to compromise is pushing us to the brink of a default on the full faith and credit of the United States. We have run out of time for politics. Now is the time for cooperation," he said in a sharply worded statement.

A spokesman for House Speaker John Boehner, Michael Steel, responded mildly. "Like the President and the entire bipartisan, bicameral Congressional leadership, we continue to believe that defaulting on the full faith and credit of the United States is not an option," he said in a written statement.

Obama met earlier in the day with the Republican and Democratic leaders - but only briefly- the day after Boehner abruptly broke off his own once-promising compromise talks with the White House.

In talks through the afternoon in the Capitol, congressional aides were looking at an immediate debt limit increase of about $1 trillion, officials said, with slightly higher spending cuts to be locked into place simultaneously.

Another $1.4 trillion in additional borrowing authority would be needed to satisfy Obama's demand that any deal extend into 2013. "A two-step process is inevitable," Steel said, although and based on Reid's accusation, it was clear the two sides had not yet been able to bridge their differences.

On one point, there was no disagreement - time is running out.

Congressional aides labored to produce a tentative agreement by Monday, congressional officials said. Even that would allow scarcely enough time for the House and Senate to clear legislation in time for Obama's signature by the Aug. 2 deadline, a week from Tuesday.

More urgently, Boehner told rank-and-file Republicans in a conference call he hoped to be able to announce a "viable framework for progress" by 4 p.m. EDT on Sunday, before the stock markets open in Japan and elsewhere in Asia, according to two participants.

Lawmakers fear a big drop in investor confidence in stocks and bonds could start in Asia and sweep toward Europe and the Americas, causing U.S. stock values to plunge on Monday.

Barring action by Aug. 2, the Treasury will run out of the money needed to pay all its bills, triggering a possible default that could seriously damage the domestic economy and send damaging waves across the globe. Obama has warned repeatedly of the possibility of a spike in interest rates that could affect Americans' mortgages, credit cards and other forms of personal debt.

"The bipartisan leadership in Congress is committed to working on new legislation that will prevent default while substantially reducing Washington spending," McConnell said in a written statement not long after he, Boehner and Democratic leaders met with Obama at the White House.

Obama appeared grim-faced as he convened the meeting around the big table in the White House Cabinet Room. He was flanked by Boehner, R-Ohio, and Reid, D-Nev. Vice President Joe Biden, McConnell and Pelosi also attended.

The only aides attending the White House meeting were budget director Jack Lew and Treasury Secretary Tim Geithner, who emphasized the concern about Asia.

Afterward, White House press secretary Jay Carney issued a stern statement: "Congress should refrain from playing reckless political games with our economy. Instead, it should be responsible and do its job, avoiding default and cutting the deficit."

Under normal procedures, Boehner would need to have legislation on the House floor by Wednesday to allow enough time for a measure to reach Obama's desk in time to meet the debt-limit deadline.

Negotiators were working against two avowedly non-negotiable demands - Obama's insistence on a plan that assures no rerun of the current crisis until 2013 at the earliest, and Boehner's requirement that spending cuts over 10 years must exceed the size of any increase in borrowing authority - without any rise in taxes.

To comply with both edicts, under most estimates, legislation would have to cut more than $2.4 trillion across the next decade, since that is the amount of additional borrowing authority the Treasury is expected to require to pay the nation's bills.

Also complicating the talks were divisions within each party.

Liberal Democrats are generally opposed to cuts in Medicare and Social Security, while Obama hopes to use the negotiations to appeal to voters who want big cuts in federal deficits.

Tea party-backed Republicans, dozens of whom are in the House, adamantly oppose any higher taxes, while Obama has made more revenue the price of admission to the talks.

It was unclear how much Reid, House Democratic leader Nancy Pelosi, Boehner and McConnell would rely on the results of earlier talks, those that Biden held with lawmakers for several weeks in the Capitol and negotiations Obama had with leaders in a group and with Boehner.

Judging from accounts provided by officials in both parties, Obama had previously agreed to significant changes in benefit programs, including raising the raise of eligibility for Medicare from 65 to 67 for future recipients, and also slowing the projected rise in Social Security cost of living benefits. His concessions triggered a revolt earlier in the week by Senate Democrats, who feared he was giving away too much without getting enough additional government revenue in return.

For his part, Boehner had been ready to agree to an overhaul of the tax code that would result in a net increase of revenue to the government of $800 billion over a decade.

There also had been a general agreement to cut $1 trillion or more from hundreds of government programs ranging from the Park Service to foreign aid and agriculture, and to chalk up another $1 trillion in savings by assuming the end of the wars in Iraq and Afghanistan.

There was another possible element of a deal on the shelf - legislation that McConnell and Reid have developed that would let Obama raise the debt limit by $2.4 trillion in three installments over the next year or so without prior approval by Congress. Instead, he would be required to recommend spending cuts assured of coming to a vote in Congress.

Additionally, that proposal envisions establishment of a special congressional committee to recommend cuts in benefit programs such as Medicare and Social Security and possibly draft a tax reform bill as well.